Spotlight Scotland s Prime Residential Property Market Spring 2014

Savills World Research UK Residential Spotlight Scotland s Prime Residential Property Market Spring 2014 savills.co.uk/research

This publication This document was published in March 2014. The data used in the charts and tables is the latest available at the time of going to press. Sources are included for all the charts. Glossary of terms n Prime: refers to the most desirable and aspirational property by reference to location, standards of accommodation, aesthetics and value (second hand 400,000 and above). Typically it comprises properties in the top three per cent of the Scottish market by house price. n Mainstream: refers to the bulk of the Scottish housing market. On the cover: Cardon, located in the Grange area of Edinburgh, is due to be launched this spring. Prime transactions across the southern suburbs of Edinburgh increased annually by 29% last year.

Spring 2014 Spotlight Scotland s Prime Residential Property Market There is a much improved outlook for prime residential markets across Scotland. However, uncertainty surrounding the forthcoming Referendum may temper progress. SUMMARY n Prime transactions across Scotland increased by 22% last year, led by the market hubs of Edinburgh, Greater Glasgow and the Aberdeen area. Demand in the core hotspots of Edinburgh and Glasgow is increasingly being driven younger professionals. Non-Scottish buyers made up 34% of the million pound market last year compared to 26% in 2012. n There is a shortage of supply in some of the central locations of Edinburgh and Glasgow, resulting in a gentle rise in prime values. We expect a further rise in prime values across Scotland by the end of this year, with an increase of 18% over the course of the next five years, as we enter the next phase of recovery. n Mainstream transactions across Scotland increased by 16% last year, boosted by a higher number of mortgages. Market strength is spreading to commuter locations such as Angus, Midlothian and Renfrewshire. We are forecasting that average values will rise by 4.5% this year in Scotland, with transactions expected to increase by 10% during 2014. Waterfoot House (Offers Over 1,500,000) near Thorntonhall in the Greater Glasgow area, where prime transactions increased annually by 25% last year. Strong growth in prime sales The prime second hand residential market, at 400,000 and above across Scotland, showed strong performance last year, with a 22% annual increase in activity, reaching 2,536 transactions during 2013 (see Table 2). The market has been robust from spring 2013 onwards with deals being done throughout the winter period. A further 188 prime transactions registered in January 2014 across Scotland, making it the busiest start to the year since 2008. The prime market is being boosted by the hubs of Edinburgh, the Aberdeen area and Greater Glasgow, where prime activity increased annually by around 25% in each location. The prime market in Edinburgh was heavily supported by the hotspots of Grange, Morningside and Merchiston. Prime transactions in this combined area increased by 29% last year, representing 219 sales (see Table 3). The West End of Edinburgh and the northern suburb of Trinity also enjoyed a better market in 2013, following slightly lower activity in the previous two years. Similarly, the prime southern Glasgow suburbs of Pollokshields, Newlands, Giffnock and Newton Mearns experienced a strong market last year with a 31% increase in activity. These areas continue to be supported by top quality education facilities and excellent transport links. We have noticed a change in the buyer age group over the course of the last n We do not expect possible Scottish Independence to affect the viability of Edinburgh and Aberdeen as attractive locations, nor do we think that it will prevent buyers with strong Scottish connections from entering the market. However, uncertainty surrounding the key issues of currency, taxation and mortgage rates could stall the market and have an adverse affect on buyers from other parts of the UK, who are becoming a key component of the residential market across Scotland. Table 1 Residential market forecasts across Scotland Year Prime value change Table source: Savills Research Mainstream value change Residential transactions 2014 1.0% 4.5% 92,600 2015 2.0% 4.5% 99,100 2016 4.5% 3.5% 105,000 2017 4.5% 3.5% 107,200 2018 5.0% 2.0% 107,500 savills.co.uk/research 03

Spotlight Scotland s Prime Residential Property Market "The prime Scottish market at the beginning of this year has been the busiest since 2008" Faisal Choudhry, Savills Research graph 1 Savills StockWatch Scotland Properties advertised at 400,000+ 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Q1 2011 955 245 Q2 2011 1,165 674 Graph source: Savills Research Q3 2011 Table Source: MyHousePrice.com / Savills Research n Fresh stock - number of prime properties newly launched on to the market in Scotland n All prime stock - total number of prime properties available to purchase in Scotland 1,268 415 Q4 2011 1,151 table 2 Prime transactions are on the increase 178 Q1 2012 1,072 367 1,325 1,462 Q2 2012 606 Area 2009 2010 2011 2012 2013 SCOTLAND 1,693 2,348 2,184 2,074 2,536 Edinburgh 522 765 712 691 861 Aberdeen area 307 426 430 424 532 Greater Glasgow 351 451 408 360 447 Tayside 121 162 143 140 167 East Lothian 62 103 80 109 117 Fife 73 96 106 84 91 Stirlingshire 56 56 67 55 63 Ayrshire 51 68 60 44 62 Borders 40 49 53 40 61 Highlands & Islands 44 60 45 37 37 West Lothian 14 31 27 23 30 Dumfries & Galloway 22 39 22 31 29 Argyll & Bute 18 30 19 27 22 Midlothian (excluding Edinburgh) 12 12 12 9 17 428 Q3 2012 1,395 205 Q4 2012 year. In previous years there was an over reliance on those aged 50 and above driving the market. However, the prime market in the city hotspots of Edinburgh and Glasgow is increasingly being driven by younger professionals aged from 30 to 39, comprising around 40% of Savills sales last year. This target market had been somewhat subdued following the housing market downturn, mainly due to affordability issues. However, there was an everpresent pent-up demand among this 1,282 392 Q1 2013 1,572 690 Q2 2013 1,548 650 Q3 2013 1,508 300 Q4 2013 1,260 250 Q1 2014 (to date) age category aspiring to upsize. This age group is now more active and is enabling the whole of the market to move again following low levels of sales during 2011 and 2012. The market strength in the core locations of Edinburgh, Aberdeen and Glasgow has spilled out to some of Scotland s provincial locations, such as Tayside, where prime transactions increased last year by 19%. The prime markets in Ayrshire and the Borders also improved last year following restrained performance during 2012. Prime values Prime values across Scotland have fallen over the last few years due to the high levels of stock available on the market (see Graph 1). However, the significant increase in prime sales has created a net reduction in stock levels. Supply in some hotspots in Edinburgh and Glasgow has been decreasing, resulting in a slight rise in values, particularly towards the end of last year. The rebalancing of supply and demand has started in the country locations of Scotland with values beginning to stabilise during the last quarter of 2013. We expect a gentle rise in Scottish prime values during 2014 when supply and demand eventually rebalance (see Table 1). Modest recovery in the 1m market There was a modest increase in transactions at the top end of the market above 1 million, with 136 sales recorded in 2013 compared to 125 during 2012 (see Graph 2). The current level of 136 transactions is 11% below the 10-year annual average of 152 transactions. The million pound market in Scotland has been affected by a falling number of home-grown buyers. On the other hand, the number of purchasers from outside Scotland approached its highest level since the peak of the market in 2007, with 41 sales recorded to buyers from outside Scotland last year, the same level as 2007. Non-Scottish buyers made up 34% of this market last year, compared to 26% in 2012. The majority of non-scottish million pound buyers last year came from London, with overseas purchasers mainly coming from other parts of Europe, the USA and the Middle East. 04

Spring 2014 Edinburgh, the traditional hub of the prime market with a 51% share of this market, saw a rise at the top end, representing 69 transactions during 2013 compared to 54 in 2012. The Aberdeen area, Greater Glasgow and Tayside together made up 35% of the million pound market, representing 47 transactions. The top-end of the market in some of Scotland s country locations remained slow, with only 20 sales last year at 1 million and above. Last year, the West End of Glasgow saw five residential transactions above 1 million, which were the first such sales in this location since 2011. Across Scotland, there were only seven transactions at 2 million and above last year compared to 11 in 2012. However, there was an increase in activity in this price band at the end of last year, which should improve the numbers for 2014. Estates market The total value of Scottish estates traded last year was in excess of 54 million, an increase of 17% compared to 2012. There have been varying price tags for the estates traded, with one selling for almost 20 million and the majority for 6 million or less. Out of the 13 estates that sold last year, five transactions were private deals. Our analysis of openly marketed Scottish estates shows that the buyers were split equally between the UK and mainland Europe. The majority of viewers have been international businessmen, attracted by the range of sport on offer. The impending referendum on Independence in September this year does not appear to have made a significant difference to the market. A handful of buyers are putting their search on hold until the outcome of the vote and the consultation on Land Reform is known. The majority still view Scotland as a relatively safe haven for their money. More mainstream sales House purchase activity across Scotland was strong last year, with a 16% increase in transactions from 72,440 during 2012 to 84,228 during 2013. This was led by a 15% increase in mortgage lending over the same period (see Graph 4). This has mainly been driven by the Funding for Lending scheme (FLS) which has made a positive contribution to graph 2 Modest rise in million pound sales 350 300 250 200 150 100 50 0 63 124 162 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Graph source: MyHousePrice.com / Savills Research table 3 Local heroes supporting the prime market mortgage availability across the UK. More encouragingly, the actual time taken from a property coming onto market to reaching sold status across Scotland s cities has improved, with an average selling time of 16 weeks over the last three months, according to the website Home.co.uk. We are forecasting that average values will rise by 4.5% this year in Scotland with transactions expected to increase by 10% during 2014 (see Table 1). We expect a slight slowdown in the growth rate of residential values and transactions across the mainstream markets in Scotland as the Help to Buy government stimuli come to an end in 2016. However, we expect the economy to be in a much better shape during that period, which will help underpin the housing markets towards the end of this decade. Independence impact There is gathering anecdotal evidence that uncertainty around the Independence debate is becoming a concern for some buyers and sellers. As the Scottish property market recovers from the economic downturn, this uncertainty has the potential to stall the market once again. 289 236 106 145 139 139 125 Area 2009 2010 2011 2012 2013 Grange, Morningside and Merchiston 119 209 183 170 219 Glasgow Southside 81 120 108 96 126 Edinburgh West End 21 49 30 27 47 Trinity, Edinburgh 23 33 33 26 42 Table Source: MyHousePrice.com / Savills Research 106 Around 65% of residential transactions in Scotland every year are dependent on a mortgage, and lending rates applied in Scotland would therefore have the biggest impact on the market post Independence. As a new country with a small economy on the periphery of Europe, it is likely that Scotland would incur a higher credit risk, and therefore have a lower credit rating than the rest of the UK. This was suggested in a HM Treasury report published last summer which highlighted the perception of the Scottish banking sector as being more vulnerable, resulting in possible higher risks and higher funding costs that could be passed on to consumers. Potential increased risk would probably mean an independent Scotland "Non-Scottish buyers made up more than a third of the million pound market last year" Emily Dorrian, Savills Research 125 136 savills.co.uk/research 05

Spotlight Scotland s Prime Residential Property Market incurring higher mortgage rates, putting upward pressure on household finances and potentially driving down the value of housing, as buyers seek affordability. This might lead to the residential market stalling once again, with sellers unwilling to accept lower prices, just as they did during the recent economic downturn. Whether an independent Scotland would have a negative impact on Edinburgh s position as a financial services hotspot and Aberdeen s energy sector is debatable. Edinburgh s strength in asset management, banking and insurance sectors will continue to sustain its economy post Independence, as long as the leading institutions do not pull their head offices out of Scotland. Energy companies are unlikely to desert Aberdeen post Independence. There remains up to 20 years of oil reserves in the North Sea, and more interestingly Aberdeen has become a global hub for expertise in oil and gas extraction in other parts of the world, so it is not wholly dependent on North Sea oil. It is, therefore, unlikely that there will be a rush of energy companies deserting Aberdeen in the event of a Yes vote. Scotland s natural scenic beauty and quality of life are likely to remain a pull factor, whatever the outcome of this September s referendum. In our experience, the purchase of a Scottish property by the ultra-wealthy is a luxury and buying decisions are made on an emotional whim, and are unlikely to be influenced by politicaleconomic factors. Similarly, the outcome of the Referendum will not impact on purchasing decisions for those selling in Scotland and intending to remain in Scotland. Those who have strong Scottish connections and who have perhaps held a long-term commitment to return north, perhaps for schooling, family or lifestyle reasons, may not be easily discouraged from doing so in the event of Scottish Independence. However, Scotland s housing market recovery is becoming increasingly reliant on buyers from the South moving to Scotland in search of a better quality of life and value for money. The number of applicants who registered with Savills to buy north of the Border doubled in 2013. We believe this positive facet of our 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Graph source: Council of Mortgage Lenders / Registers of Scotland market could be hampered in an independent Scotland. There is a lack of information from pro-independence campaigners about the fundamental issues of currency, mortgages and property taxation. These are the factors that buyers and sellers of Scottish residential property will need to consider before casting their votes in September. n The number of applicants who registered with Savills to buy north of the border doubled in 2013 Faisal Choudhry, Savills Research graph 3 House purchase lending and residential transactions in Scotland per quarter Residential transactions in Scotland Number of loans for house purchase lending in Scotland 2008Q4 2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 Savills Research team Please contact us for further information Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. Faisal Choudhry Scotland Residential 0141 222 5880 fchoudhry@savills.com Emily Dorrian Scotland Residential 0141 222 4132 edorrian@savills.com Lucian Cook UK Residential 020 7016 3837 lcook@savills.com This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. 06

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